-- We are affirming our 'A+' long-term issuer credit and senior secured
debt ratings on Ottawa Macdonald Cartier International Airport Authority.
-- The ratings reflect our assessment of the authority's strong
competitive position, light-handed regulatory framework, sound financial
metrics, and adequate liquidity.
-- The stable outlook reflects our expectation that Ottawa's passenger
volumes will flatten in 2013, before recovering moderately in 2014.
On Jan. 22, 2013, Standard & Poor's Ratings Services affirmed its 'A+'
long-term issuer credit and senior secured debt ratings on Ottawa Macdonald
Cartier International Airport Authority (Ottawa or the authority), the
operator of Ottawa Macdonald Cartier International Airport. The outlook is
The ratings on Ottawa reflect our view of the authority's strong competitive
position, light-handed regulatory framework, sound financial metrics, and
adequate liquidity. We believe significant airline customer concentration and
unmitigated passenger volume exposure constrain the ratings.
In our view, Ottawa has a strong competitive position that contributes to
stable and predictable operating cash flows. It has a monopoly on airport
services in Canada's capital, the City of Ottawa, and surrounding region. It
also has a high origination and destination passenger mix, at about 90%. As a
result, its passenger volumes are tied closely to the performance of the local
economy, which has shown exceptional long-term stability due to its large
public sector. While government fiscal consolidation efforts are likely to
depress local economic activity, we expect regional economic fundamentals to
remain sound in the next two years, supporting the authority's passenger
demand and revenues.
Like other Canadian airport authorities (CAAs), Ottawa has unimpeded
rate-setting autonomy that provides tremendous financial flexibility. The
authority can fully adjust rates without government approval, although it must
give 60 days' notice to airport stakeholders. It can also seize aircraft for
nonpayment of airport bills. This, together with its active and historically
successful receivables management practices, reinforces its rate-setting power.
Ottawa also has a low aeronautical rate structure, which offers additional
flexibility and stimulates travel demand. As a guiding principle, management
uses incremental revenue from passenger growth to cover inflationary operating
costs, filling any shortfall with aeronautical rate increases. On the capital
side, it leverages or directly uses revenue from an airport improvement fee
(AIF) on passengers to fund expansion work. It has managed both envelopes
well, maintaining the lowest average aeronautical fees among tier 1 CAAs in
2012 and a relatively moderate AIF of C$20 per ticket. We expect the authority
to retain a strong competitive rate advantage in the next two years,
notwithstanding its planned 3% aeronautical fee increase effective Feb. 1,
Ottawa also has strong financial metrics relative to those of similarly-rated
CAAs. By our estimates, its debt burden was about C$150 per enplanement in
2012, while its indenture-based debt service coverage ratio (DSCR) was 2.2x.
We expect these metrics to weaken moderately in the next two years, as the
authority increases its bank facility draws to partly fund several capital
projects. In particular, we expect Ottawa's debt per enplanement to reach
approximately C$160 in 2014, well below the peak of C$170 it had in 2007.
However, we believe the authority has large airport client concentration that
exposes its revenue base to airline strategy changes or financial
difficulties. Its main client is Air Canada and its affiliates, which account
for more than half its passenger base. The trend toward increasing market
share of WestJet Airlines Ltd. and Porter Airlines Ltd. at the airport,
particularly since 2008, has lessened Air Canada's concentration.
In addition, we believe consistent strong passenger growth at the airport has
introduced challenges, particularly in the international and transborder
areas, that could require Ottawa to undertake the next round of major airport
expansion ahead of the 2017 timeframe it predicted in its 2008 master airport
plan. We believe these growing constraints temper to some extent the
authority's flexibility to materially postpone or defer works to manage its
financial metrics in the medium term.
The stable outlook reflects our expectation that Ottawa's passenger volumes
will flatten in 2013, before recovering moderately in 2014. To the extent its
traffic underperforms, or its outlook beyond two years deteriorates, we expect
the authority to raise fees or cut discretionary spending to avoid material
erosion in financial metrics relative to historical levels. We could revise
the outlook to positive or raise the ratings if, all else equal, we came to
expect Ottawa would strengthen its financial metrics in the next two years,
with a debt per enplanement near C$100 and a DSCR consistently exceeding 2.0x.
Alternatively, we could lower the ratings if the federal government introduced
potentially negative changes to CAAs' regulatory environment, or we foresee a
significant weakening in the authority's financial metrics versus historical
levels in the next two years. We view both scenarios as unlikely.
Related Criteria And Research
-- USPF Criteria: Airport Revenue Bonds, June 13, 2007
-- Rating Government-Related Entities: Methodology And Assumptions, Dec.
Ottawa Macdonald Cartier International Airport Authority
Issuer credit rating A+/Stable/--
Senior secured debt A+
Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard & Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left